Cross-Border Business Combinations

Even though tender offers and other business combination transactions may involve only non-U.S. companies, such transactions may nonetheless be subject to various U.S. laws and regulations, including U.S. federal securities laws and regulations. The application of U.S. federal securities laws and regulations generally depends on how the transaction is structured, whether any of the companies is subject to U.S. securities law and reporting obligations, and whether any of the companies’ security holders are located or resident in the United States. U.S. federal securities laws and regulations are applicable to cross-border tender offers and other business combination transactions involving, in the case of a tender offer, a “target,” or, in the case of a business combination transaction not involving a tender offer, a “subject company” that is organized in a jurisdiction outside the United States.

“Tender offer” refers generally to an offer by a bidder to acquire shares of another company, whether for cash or securities or a combination of the two, that is made directly to security holders of the target company and may or may not be supported by management of the target company. References to a “business combination transaction” mean a combination of two entities’ businesses by means of a tender offer or otherwise.

A fundamental goal of the U.S. securities laws is the protection of U.S. investors. The SEC has historically taken the view that U.S. securities laws potentially apply to any transaction that is conducted in the United States or that employs U.S. jurisdictional means. Specifically, U.S. securities laws may be implicated as follows:

• The general anti-fraud provisions of the U.S. Securities Exchange Act of 1934, as amended, may be violated where fraudulent conduct occurs in the United States or where the effects of the fraudulent conduct are felt in the United States.
• If a tender offer is made for securities of a class that is registered under the Exchange Act, it is generally necessary for the bidder to comply with the tender offer provisions of the Exchange Act, subject to available exemptions, if any.
• Even where the target company does not have a class of securities registered under the Exchange Act, the Exchange Act proscribes certain “fraudulent, deceptive, or manipulative” acts or practices in connection with tender offers that are potentially applicable.
• If securities are to be offered to persons in the United States, it may be necessary to register such securities pursuant to the U.S. Securities Act of 1933, as amended, or to confirm the availability of an exemption from registration.

U.S. federal securities laws apply to a tender offer or other business combination transaction notwithstanding the nationality of the bidder or target or the protections afforded by their respective home market regulators if extended to holders in the United States. This approach contrasts with the approach taken in many European jurisdictions, where the jurisdiction of the organization of the target or the jurisdiction of its primary listing, rather than the residency of the investors or the means by which the offer is made, will determine the regulatory implications of the transaction. For instance, the United Kingdom’s City Code on Takeovers and Mergers applies to offers for all public companies, whether listed or unlisted, resident in the United Kingdom, the Channel Islands, or the Isle of Man; South African takeover regulations apply to companies that are deemed to be resident in South Africa; and in France, the rules relating to tender offers generally apply only where the target company is a French entity listed in France—the residency of the shareholders of the target is irrelevant.

Rule 802 is an exemption for the issuance of shares in an exchange offer. To qualify, the target must be a foreign private issuer with a U.S. shareholding of less than 10 percent. There are also exemptions for Canadian companies in the Multi-Jurisdictional Disclosure System. Section 3(a)(10) of the Securities Act provides an exemption for the issuance of shares in connection with a business combination pursuant to a court order.

There are two tiers of cross-border exemptions to U.S. tender offer rules. Tier I applies in the following circumstances:

• The transaction is a tender offer for the equity securities of a target company that is a foreign private issuer.^[1]
• Fewer than 10 percent of the target company’s shares are held by U.S. residents.

In the case of a Tier I offer, the bidder is exempt from the following procedural requirements:

• the rules governing the duration of the tender offer and extensions;
• the prompt payment requirement;
• restrictions on purchases outside of the tender offer; and
• the rules governing the response of the target company.

Tier II applies in the following circumstances:

• The offer is a tender offer for the equity securities of a target company that is a foreign private issuer.
• More than 10 percent but less than 40 percent of the target company’s shares are held by U.S. residents.

In the case of a Tier II offer, the bidder is exempt from the following procedural requirements:

• the rules governing notice of extensions;
• the prompt payment requirement;
• the prohibition on early termination of the tender offer period; and
• the prohibition on purchases outside of the offer.

1. 1. A non-U.S. company will qualify as a foreign private issuer if it meets the following requirements:

      • 50 percent or less of its outstanding voting securities are held by U.S. residents or
      • More than 50 percent of its outstanding voting securities are held by U.S. residents, and none of the following circumstances apply:
        • The majority of its executive officers or directors are U.S. citizens or residents.
        • More than 50 percent of its assets are located in the United States.
        • Its business is administered principally in the United States.↑